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When it comes to creating wealth and achieving financial freedom, creating multiple streams of income is essential, and passive income allows you to do this without having to spend more time trading. In his recent article, “How to Earn Passive Income From Real Estate,” personal finance expert Dave Ramsey delves into the world of real estate investing and discusses the various ways individuals can earn passive income through real estate ownership. While many people associate real estate investing with being a landlord, Ramsey points out that there are several other options for those who want to benefit from the real estate market without the hassle of property management.
Why Real Estate for Passive Income?
Ramsey emphasizes that real estate has brought wealth to generations of investors, and for good reason. He points out that real estate investments often have the potential for passive cash flow and the income generated does not necessarily correlate with working hours.
However, Ramsey also acknowledges that owning and managing your own rental property isn’t really passive. Being a landlord involves a variety of tasks, including maintaining the property, screening tenants, and dealing with potential problems such as late rent payments or property damage. For those looking to invest in real estate without the hands-on approach, Ramsey recommends exploring other options.
REITs: A truly passive real estate investment
Real Estate Investment Trusts (REITs) offer investors the opportunity to profit from the real estate market without having to own and manage physical properties. REITs are companies that own and operate income-producing properties such as apartment complexes, shopping centers and office buildings. Investors can purchase shares of these companies, similar to stocks, and receive a share of the income generated from the properties.
Ramsey discusses three main types of REITs: listed, unlisted and private. Publicly traded REITs, such as Realty Income Corp (NYSE:O) are popular with investors due to their liquidity and the possibility of regular income through monthly dividends. Realty Income Corp, in particular, is known for its world-class tenant base, which includes many major businesses such as grocery stores and pharmacies, and its impressive track record of dividend growth. Realty Income has declared 646 consecutive monthly dividends and is a member of the S&P 500 Dividend Aristocrats Index because the company has increased its dividend for the past 25 consecutive years.
Private and non-traded REITs, on the other hand, are not listed on public stock exchanges. While these REITs don’t offer the same level of liquidity as companies like Realty Income, they also provide some protection from market volatility. Stock prices are based on the value of the REIT assets and not on market sentiment on a particular day.
A popular non-traded REIT is the Rental fund for single-family homes. This REIT allows investors to gain access to a diverse portfolio of single-family rental properties without having to own and manage the properties themselves. It pays monthly dividends and has a low minimum investment of just $100.
Crowdfunding and Syndication: Accessible Real Estate Investing
Crowdfunding and syndication have become popular ways for investors to pool their money to invest in real estate projects. Ramsey explains that these methods give investors access to a variety of real estate opportunities, from individual rental properties to larger commercial projects.
For those interested in investing in individual rental properties, Arrived offers a compelling opportunity. This platform allows investors to purchase shares in single-family homes and thus gain access to the rental market without having to bear the responsibility of a landlord. The platform is accessible to a wide range of investors, with low minimum investment requirements and a user-friendly interface. Click here to view properties currently available on the Arrival platform.
For accredited investors looking to invest in large-scale projects such as multifamily and commercial real estate, RealtyMogul is another option to consider. RealtyMogul has been enabling investors to build their real estate portfolios for over 12 years and has invested over $1 billion in capital on the platform. The company’s approach combines personalized service, proven business discipline and data-driven insights to provide investors with exclusive access to select real estate opportunities. As of the end of the first quarter of 2024, fully realized investments on the RealtyMogul platform have generated an average IRR of 19.5%. Click here to view the investment offerings currently available on RealtyMogul.
More passive real estate investment options
Some passive real estate investments don’t exactly fit the mold of traditional REITs and crowdfunding. One of the more unique and innovative investment vehicles on the market is Cityfunds, which has a wide range of opportunities to benefit from the growth of the residential property market.
Cityfunds: Invest in the real estate market of an entire city
For investors seeking a unique approach to passive real estate investing, City Fund offers an innovative solution. Cityfunds allows individuals to invest in a diversified portfolio of Home Equity Investments (HEIs) in some of the best cities in the country, giving them access to a city’s entire real estate market.
By investing in Cityfunds, individuals can unlock the potential of the $32.6 trillion home equity market, which has grown an impressive 211% since 2013. Cityfunds makes this asset class accessible to private investors and allows them to benefit from increasing property values and payouts from home sales or refinancing.
One of the main advantages of investing in Cityfunds is the diversification it brings. By owning fractional shares of unique homes spread across a range of properties, investors can reduce risk and increase the stability of their portfolios. Cityfunds also takes a risk-adjusted approach, backing colleges at 10-15% below market value to ensure investors are “in the money” from day one.
Click here to see the cities you can invest in through Cityfunds
Cityfunds Yield Fund: Passive income with real estate support
For investors who are specifically interested in generating passive income, the Cityfunds Yield Fund is an option worth considering. This fund targets an APR of 8% and offers investors a stable cash flow backed by real estate assets. By investing in a diversified pool of secured real estate loans, including home equity secured notes and short-term mortgage notes, Cityfunds Yield Fund aims to generate consistent interest income for its investors.
One of the attractive aspects of this fund is its quarterly distribution structure. Investors can choose whether they want to reinvest their distributions to earn a higher return or have them paid directly into their bank account. With a five-year maturity and twelve-month liquidity options, this fund offers a balance between liquidity and long-term growth potential.
Click here to see how much you could earn with the Cityfunds Yield Fund.
The conclusion
Dave Ramsey’s insights into making passive income from real estate highlight the various ways individuals can benefit from this lucrative asset class without having to become a landlord. Whether through REITs, crowdfunding, syndication or innovative platforms like Cityfunds, investors have more opportunities than ever to get involved in real estate and potentially generate passive income.
As always, it is important to conduct thorough research and consider your individual financial goals and risk tolerance before making any investment decisions. However, for those looking to diversify their portfolios and realize the potential of real estate, the options discussed by Ramsey provide a solid starting point for further exploration.
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Image Source: Screenshot from Why Owning Real Estate Is NOT Passive Income by The Ramsey Show Highlights on YouTube
This article by Dave Ramsey says, “There’s Nothing Passive About Being a Landlord” – How to Invest in Real Estate for Truly Passive Income originally appeared on Benzinga.com